My First Deal

2 Replies

Happy New Year. I am finalizing the paper work for my LLC and have a property in sight in my neighborhood. I am trying to get a private investor vs. a hard money lender. I recently read on BP the information about "financial analysis". From experience do private investors charge interest on the loan or prefer to take a percentage of the net profit for it to be considered a good investment. For example, if the investor funds 80% of the deal and charges 6% interest on the loan amount this would yield less money in the total return of their investment with a flipped property (given you flip in 60days) versus if they want 10% of the net profits. For example 80% loan on $100000. Property is flipped and resold for $150000. Brokers fee is 4% ($6000), Investor gets 88800 (loan and interest), closing cost perhaps is $20000. If I spent $10000 to rehab and $20000 for the down payment using the Cap Rate formula NOI/Property Price= $35200/136800=25.7%. If the investor wanted 10% of the NOI they would yield a profit of $3520 vs. $800 only on the loan interest. Or perhaps I am mistaken that the investor would not do a 6% interest rate on a 12month scale but rather charge 6% off the top? Please assist in responding to what is the normal trend. Thanks

@Cynthia Eugene  ,

Congratulations on getting started!

I think your strategy of seeking private money is great, what I would say is nothing is typical.  It really depends on the appetite of the investor and your relationship with them.  For my family members, I've offered them 5% interest /10% profits on a flip.  If I'm doing buy & hold I've offered 10% interest with a fully repayment of the loan in 1-3 years.

Good luck and Happy New Year!

Andrew

Thanks Andrew. I figured that the best way to keep more money in my pocket is to use a private investor.

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